Importance of Public Finance

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Importance of Public Finance

Every body realizes necessity of money. The importance of money is too much not only for individual but for state (Govt.) also. The state has to perform number of functions for which money (funds) is required. In under developed countries like India, Govt. is performing many important functions like education, industrial and agricultural developments but lack of funds is one of the constraints. For beginning of any function funds (finance) is must and in view of this the public finance nowadays has vital importance. Its importance can be easily understood from the functions of public finance. They are

1) Allocative Function: It refers to the process by which total resource use is divided between private and social goods by which the mix of social goods is chosen, this is done by the budgetary policy.

2) Distributive function: The budgetary policy also affects the distribution of income in the community. The tax and expenditure measures are adopted to modify the existing distribution with a view to reducing economic inequalities.

3) Stabilization function: The budgetary policy can also be used to maintain a high level employments reasonable degree of price level stability, an appropriate rate of economic growth and stability in the balance of payment.

Apart from these, public finance is important because it is an effective instrument of state control over the economy. The study of public finance is especially important for the under developed countries as management of state finances is essential to break the vicious circle of poverty.

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